Labor Department Plans New Rulemaking on Tips

United States

04/10/2018

Bloomberg Law

The Labor Department is drafting a regulation intended to clarify a new law that bans managers from skimming tips, even as the agency begins enforcing the changes to wage-hour law unexpectedly hurried through the government spending process last month.

The DOL’s Wage and Hour Division “expects to proceed with rulemaking in the near future to fully address the impact of” of the tips provision included in the federal spending package, according to an internal memo appearing on the WHD website this morning.

The amendment to the Fair Labor Standards Act came from a budgetary compromise to quell a major controversy facing the DOL. Attorneys for workers and businesses instantly noticed ambiguities in the omnibus language.

Chief among the uncertainties was that the FLSA doesn’t define “manager” or “supervisor,” the two occupations the budget rider now blocks from retaining employees’ tips.

The division’s new memo attempts to address this issue by informing investigators to begin enforcing the statutory changes by applying the existing “duties test” when determining who qualifies as a manager or supervisor. This refers to the rules governing which workers perform managerial duties that exempt them from time-and-a-half overtime pay.

In another big enforcement update addressed in the WHD bulletin, the division now recognizes the legality of tip pools between front-of-house workers, such as servers and bartenders, and back-of-house employees who don’t directly earn gratuities, such as cooks and dishwashers. This applies only to scenarios when the business pays workers the full minimum wage of at least $7.25 per hour.

In other words, restaurants that currently apply the tip credit, enabling them to pay tipped employees as little as $2.13 per hour, can now lift servers and bartenders’ pay up to the full minimum wage and require them to share gratuities with the back of house.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com